Last week, Project Crowd, an AI recruitment platform, announced it had selected digital investment platform WeOwn to launch its Security Token Offering (STO), giving entry-level investors an opportunity to back the fast-growing recruitment technology company.
The launch is taking place on the WeOwn platform, which offers better capital raising opportunities for both high growth SMEs and scale ups, and uses blockchain, to offer digital assets to both entry-level and experienced investors.
It dramatically reduces the cost of entry for both companies looking to raise funds and investors who, due to geographic location or budget, have previously been shut out of the investment process.
According to Sascha Ragtschaa, CEO & Co-Founder of WeOwn, “Platforms like WeOwn democratise the investment process, giving everyday people an affordable opportunity to back dynamic, rapidly scaling brands like Project Crowd through an intuitive, user-friendly process. There’s none of the complexity, confusion and red tape associated with traditional stock exchanges.”
SME Technology Guide spoke to Sascha Ragtschaa, CEO to find out how this new type of platform is changing the finance landscape for small businesses.
What’s the story behind WeOwn?
“WeOwn’s founders – Sascha, Florian and Ermin – spent 20 years in the corporate world, getting frustrated by red tape and obstacles that prevented businesses from connecting with investors in a direct, inclusive way.
“Combining their expertise in financial services, technology and business insight, they decided to develop a platform that would completely digitise investment, streamline the process, and cut out the middlemen that make traditional fundraising so complex and expensive.
“WeOwn’s first step was to create the right infrastructure to underpin its platform, which involved building a bespoke financial services blockchain. While tapping into an existing blockchain would have been quicker, the team knew that building something specifically for financial services would enable companies and investors to exchange digital assets, share certificates and currency through a distributed ledger, ensuring immutability and transparency. In addition, a bespoke blockchain enhances speed, security and scalability in the long-term.
“With the blockchain completed, WeOwn created a platform that enables scale-up SMEs to launch digital investment offers, manage shareholder data, and engage with investors online, all from within one portal. And the team is now working on expanding its services to include lending and a secondary exchange, using the same principles of accessibility and affordability. “
Why do you think SMEs are turning to private financing models?
“SMEs are simply too small for traditional stock exchanges to deal with. The current model ties SMEs to a network of intermediaries – brokers, advisors, lawyers, custodians and nominees – making the process incredibly complex and inefficient, with a significant level of risk.
“In addition to being complicated, each party draws income from the process, which pushes up the cost of raising capital. As there are so many growing businesses searching for funding, only the largest deals can provide sufficient income for the intermediaries involved, and therefore many SMEs are told that they are too small to list on an exchange.
“And even if they could, the benefits are becoming less and less appealing. Even among bigger brands, stock market sentiment is far from rosy. To date, only 25 companies have floated on the London Stock Exchange in 2019, fewer than the same period the past two years. While there are external factors affecting market trust – Brexit, currency and international trade policy changes – have all played an important role, the fact that IPOs are no longer a sure-fire route to international success is another major influence.
“Several big names have experienced global embarrassment since going public this year, as their stock market listing has failed to take off as they expected. Uber’s shares fell on the first day of trading as potential investors worried about its money-making potential, while main rival Lyft has suffered a similar fate, with shares losing a third of their value since it launched its IPO in March. Aston Martin also suffered from going public, with the burden of £136 million in IPO costs causing share prices to plummet, wiping 42% off its worth since October 2018.
“SMEs are realising that if these major brands can’t make an IPO work, then they definitely can’t – and they are searching for private financing as a more attractive, affordable alternative.”
How has technology democratised this process for smaller businesses? What challenges does it allow them to overcome?
“With many traditional options for raising capital falling short of the mark, forward-thinking SMEs are becoming more open-minded to the investment opportunities being offered by technology developments.
“The WeOwn platform uses a process called Security Token Offerings (STOs) to digitise equity or bonds in a company, which can then be offered to investors as a share that they can purchase directly. The platform is built on the blockchain to offer companies immediate settlement and liquidity – for SMEs in particular, cash flow is king.
“By digitising investment, there’s also much greater emphasis on user experience, which makes the process more approachable for SMEs. The WeOwn platform supports scale-up businesses beyond the initial investment offer, building-in data management and customer engagement tools to support their growth journey.
“Intuitive investment platforms are user-friendly for investors too – bringing a whole new shareholder base through the door. The fact that assets are digitised means that SMEs can offer fractional shares, lowering the barrier for entry to attract everyday investors testing the water, alongside their more established counterparts. And because the entire model operates online, there are few geographical restrictions to preclude investment, other than those included at a company’s discretion.”
Is there enough awareness among SME owners about other types of financing options? If not, why do you think that is?
“Considering that SMEs are the backbone of the global economy, they are under-serviced when it comes to financial support. It’s not always easy to get bank loans; private and public equity involves an intensive process; and crowdfunding or peer-to-peer lending doesn’t always offer the capital volumes or regulatory support that growing businesses need.
“Digital investment platforms like WeOwn address a gap in the market for successful SMEs looking to scale-up. The STO model is still relatively new so inevitably it will take time for awareness to grow, and it’s up to the tech industry to raise this awareness. SME owners are incredibly busy; they don’t have time to research every option available, so it’s our job to communicate the key benefits of our approach.”
Do you see increased appetite among SMEs to explore technology like blockchain, typically seen as a concept for big enterprises, to solve business challenges?
“Blockchain awareness is the highest it’s ever been, but up until now this awareness has been based mostly on hype. Now that we are seeing genuine use cases emerging, such as the WeOwn investment platform, people are taking its practical application more seriously.
“SMEs are run by entrepreneurs, who are natural early adopters. Now that we are seeing examples of how blockchain can be used effectively in a small business context, rather than as an infrastructure for large enterprise innovation, appetite for exploring blockchain-based technologies is only going to grow. Especially if that technology can solve a major challenge for them – like providing an investment method that offers them immediate liquidity.
“Think about how much awareness and use of the cloud has moved forward in the past few years; blockchain is doing the same thing.”
What are the risks and challenges? How can SME owners reduce any risks around this type of offering?
“One of the biggest challenges SMEs exploring private funding opportunities have faced to-date is that the options available to them – predominantly crowdfunding – do not rely on having a strong business strategy in place before raising capital. As the STO model that WeOwn operates enables participating businesses to raise more money, they need a really sharp strategic focus on how that money will be spent.
“The fact that digital investment platforms offer direct consumer engagement is also a double-edged sword. It’s a quicker, cheaper way to get investors to back your organisation, but if you don’t have a really clear and compelling business pitch then you’re not going to attract the investment you need.
“The key for any SME choosing private finance is to pick their platform carefully, and collaborate with a technology partner that can help them craft the strongest possible offering, and support them through the process.”
What are your top three tips for small business owners who opt for a private fundraising model?
“First, choose your platform carefully. Pick a partner who will not only enable you to launch a public sale, but who will support you long-term. So many SMEs lose out on valuable investor growth opportunities because they raise capital through a platform that focuses purely on issuance. It’s amazing how much easier life is if your fundraising platform also helps you manage investor data and move communications such as voting resolutions and corporate actions online.
“Second, put a really clear and compelling pitch together. This is your opportunity to talk directly to investors – you need to stand out and catch their attention! Think about the type of investors you want to attract relative to your customer base, as aligning these two audiences can provide a huge pay-off in terms of customer value.
“Finally, find a platform that is easy for anyone in your business to use. As your business grows, you don’t want to tie responsibility to one person, especially if you’re managing data and driving communications through that platform. And if it’s easy for businesses to use, then it’ll be easy for investors to use – and that means more eyeballs on your offers.”